RMB and InsurTech: A good time to be alive

With the Greater Bay Area project in full swing and mainland Chinese regulations looking favourably upon Hong Kong’s reinsurers, Peak Re has seen a surge in business and revenue from China over the past year. We spoke to its CEO Franz Josef Hahn on how he sees the Hong Kong market evolving, and what it means to have unparalleled access to the mainland.

By Ahmad Zaki

In July 2018, the China Banking and Insurance Regulatory Commission (CBIRC) agreed to give preferential treatment to Hong Kong-based reinsurers.

As the only reinsurer that was born and bred in Hong Kong, the rule helped Peak Re see its China-related business increase significantly in 2018. CEO Franz Josef Hahn called it “strong support for Hong Kong’s move to becoming an international reinsurance centre.”

A leader in insurance-linked securities

Another move that will help Hong Kong develop its reputation as a reinsurance hub is the Insurance Authority’s push to build an insurance-linked securities (ILS) market in the territory.

Peak Re’s response was to establish and launch Asia’s first reinsurance sidecar last December via a new Bermuda-based special purpose insurer, Lion Rock Re. The transaction successfully closed at $75m with investments from a panel of world-class global investors.

“It’s a pioneering move to see what it takes to be the leader in the area of ILS. It is novel for Asia,” Mr Hahn said. “In Asia, there have been other ILS, in the forms of CAT bonds, over the last 25 years. But otherwise, there has been no development. We need a strong investor base which trusts the ILS market, which in turn needs a lot of education.”

ILS in Asia is an area that is forecast to grow strongly and quickly. “To me it makes sense because when you look at the financial power of Hong Kong, there are a lot of money managers who can take on small parts of their portfolio as ILS,” Mr Hahn said.

The economic might of the Greater Bay Area

The total GDP of Greater Bay Area (GBA) was $1.5tn in 2017 and is projected to grow to $4.6tn by 2030. “It’s a huge economic might that is being built,” Mr Hahn said. “Regulators and insurance companies are working across the border and we see many projects taking off in the area of mutual market access and cross-border products.”

A large part of this development has not just been the strides the Hong Kong government has made to establish the territory as a centre for banking and financial services, but also due to the recent efforts of the mainland Chinese government. “The Chinese government has a very strong will. They are committed to this grand plan,” Mr Hahn said.

There have been several moves that have had a significant positive impact on the growth of GBA. Mr Hahn pointed to the many AI products that are being pushed in China as a huge boon to InsurTech development and InsurTech cooperation across the bay, especially with Shenzhen solidifying its reputation as the Silicon Valley of Asia. The infrastructure and talent needed for InsurTech innovation abounds in Shenzhen, and insurers only need to implement the right incentives in order to take advantage of this resource.

“Another development that is firstly good for China, and I think it’s good for the world and definitely good for Hong Kong, is the internationalisation of RMB. Hong Kong is already a hub for this, we already have access to RMB. There are quotas on it, so there will be more products and it will feature RMB much more strongly as an international trading currency,” said Mr Hahn.

Future developments

Over the rest of the year Peak Re will be looking to sharpen its InsurTech efforts. However, as it is not a wholesaler, its innovations are primarily process-focused, such as using robotics process automation designed to support clients.

The company has also been using AI to help automate its processes and improve cash flow. Additional work will be done to improve efficiency in major projects, Mr Hahn said. The company is developing AI technology for new pricing models that not only enhance existing products but also help create new ones.

The company is also engaged in strengthening its underwriting team, specifically on the analytics side, in order to calculate the most efficient way to leverage opportunities from the GBA as it continues to develop.

“We are planning to remain an Asia Pacific-focused reinsurer, but at the same time we are a global company with global insight,” he said. “That will factor into our decision-making process for our efforts in the region.”

India calling

And with all the focus on China, BRI and GBA, it might be easy to overlook the Indian elephant in the room.

Peak Re is also looking closely at the opportunities presented by India – with the recently announced double taxation treaty between Hong Kong and India being taken as a harbinger of great opportunities to come.

To be a successful modern reinsurer in Asia today requires becoming a leader in both of the two largest markets in the world of China and India and Peak Re is making no secret of the fact that it is working on both markets with equal vigour.A